A cap for energy prices? That's how it's supposed to work

Consumers are paying record prices for energy in August. When it comes to gas, households in Germany have to accept an average increase of 185 percent compared to the same month last year. When it comes to electricity, it's still 31 percent, as current figures from the comparison portal Check24 show. And there is no end in sight: Hundreds of utilities have already announced further price increases for the fall.

If the SPD has its way, citizens should therefore be protected by an electricity and gas price brake. This is what a proposed resolution by the parliamentary group for an upcoming exam, which WELT is, sees. The concept: Fixed prices apply for a certain basic requirement, beyond that the usual market prices apply. The difference would probably be borne by the taxpayer.

On the one hand, the Social Democrats want to ensure that the citizens are relieved financially. At the same time, consumers should continue to have incentives to save. "It must be made clear that consumption above the limited basic requirement can be subject to a high price increase," says the draft resolution. The only exception: households that cannot avoid consuming more than the basic requirement but cannot afford it. A so-called hardship fund should step in here.

The SPD is bringing into play what the federal government has so far shied away from: direct intervention in energy prices. It's far from decided. In any case, there is resistance from the coalition partner FDP. "It is important to fight the causes and not just to react to the symptoms," says parliamentary group leader Christian Dürr.

He focuses primarily on the electricity market. “We need to talk about corrections in the electricity market and tackle short-term measures now. It is therefore still the case that longer use of nuclear power plants creates additional capacities,” says Dürr. The strong price increases for electricity are the result of massive shortages. "We have to eliminate this artificial shortage in the short term," says Dürr.

In its draft resolution, the SPD ultimately takes up a suggestion made by the economist Sebastian Dullien in the spring. The director of the Institute for Macroeconomics and Business Cycle Research (IMK), which is close to the trade union, also sees a price cap for basic requirements as an incentive for every household to save energy.

"The federal government made mistakes," says WELT energy expert Daniel Wetzel in response to criticism of the gas surcharge. But he doesn't think it makes much sense to do everything from scratch. In addition to the crisis in gas prices, he also sees problems with the electricity supply in Germany.

In addition, such a cap relieves households, which will be particularly hard hit by the increase in energy prices. In addition, the gas price cap lowers measured inflation. This makes it less likely that inflation will break the ten percent mark in winter. "A gas price cap is a useful and important relief element," says Dullien. In view of the enormous shock, the lid could only be one element of a larger package.

Other economists have criticized the idea. From the point of view of Stefan Kooths, Vice President of the Kiel Institute for the World Economy (IfW), such a price cap would only address the problem superficially. "High prices for gas and electricity signal that there are significant shortages of these goods," says Kooths. This promises profits for everyone who alleviates this bottleneck through capacity expansion, new supply relationships or savings and higher energy efficiency. A price cap would dilute these important incentives.

Competition economist Justus Haucap is also skeptical about short-term interventions in the energy markets. The former chairman of the Monopolies Commission also sees open questions in the implementation: "In the case of a price cap, the question arises as to whether the end customer price should be capped or the wholesale price?"

If the end customer price is capped, the question arises as to who pays the difference to the supplier's price. "If that's the taxpayer, there's really no relief for citizens, only redistribution," says Haucap. And if wholesale prices were to be capped, in the case of gas, demand would increase and the scarcity even greater. "All in all, we currently have something like the choice between plague and cholera in terms of regulatory policy," says Haucap.

The economist Veronika Grimm makes a compromise proposal between the advocates and the critics of a price cap: "A one-off payment that compensates for the cost increase would be better than a price cap," she says. Consumers should be relieved of the high additional costs for a basic requirement - for example 75 percent of the previous year's consumption. This would keep the price incentive to save in full, but the burden would be cushioned.

The economist Rüdiger Bachmann also proposes an alternative, which he calls the credit model. The concept: All energy contracts would have to be converted to a new contract on a key date, but at the same time the suppliers should pay compensation to the households - based on last year's consumption. "This increases incentives to save and costs the taxpayer little," says Bachmann. Building on this, one can then also specifically help low-income households.

In the real estate industry, reference is made less to economic relationships than to the very practical pitfalls of a price cap. Where does the government support go: to every household or to the gas suppliers? "At best, a lump-sum payment to the energy supplier is an option," says Martin Kassler, Managing Director of the Association of Real Estate Managers in Germany (VDIV), which represents the interests of professional property and real estate managers in Germany. Because these usually have the previous year's consumption and can calculate and offset the subsidized consumption accordingly.

However, not all consumers could be relieved in this way. "This only comes into play if there are individual energy contracts with the respective household," says Kaßler. Relief is more complicated for anyone who is dependent on central heating. In many apartment buildings, the so-called apportionment principle applies between the parties: the bill is made up of 30 percent community costs and 70 percent individual costs.

“In this case, the tenants would have to be paid directly, but probably only after the exact consumption has been determined. And this will only come with the submission of the utility bill over the course of the next year,” says Kaßler. After all, this is easier for residential buildings that are equipped with radio measurement technology. "The monthly consumption can be precisely determined there and then also calculated," says the VDIV Managing Director. However, this technology is not yet in use everywhere.

The real estate association IVD is also skeptical. "Instead of capping the price, people should be helped with targeted grants and other instruments to ensure healthy heating of the home and prevent loss of the home when the utilities can no longer be paid," says the deputy Federal Managing Director Christian Osthus.

However, other countries have already tried setting prices – and created different models. Spain and Portugal capped the price of gas used to generate electricity in May. Above all, the electricity price for industry and consumers should indirectly remain favorable. In Spain, about a quarter of the electricity is generated with natural gas. The price cap for gas in power generation was initially 40 euros per megawatt hour and is expected to average just under 50 euros by May next year.

France is intervening even more radically: the French government artificially froze gas prices last fall, and electricity prices are also capped and are only allowed to rise by a maximum of four percent this year. The state pays the difference to the actual market price. On Monday, French Economics Minister Bruno Le Maire also announced that he intends to limit consumer costs in the coming year. Similar fixed price limits also apply in Slovenia, Romania and Estonia.

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